Millions of people signed up to car finance deals could be due compensation due to being mis-sold the contracts.
Earlier this week, MoneySavingExpert.com founder Martin Lewis urged viewers of The Martin Lewis Money Show Live to log a complaint if they believe they’re due compensation. He predicted that the issue could become “the UK’s second-biggest reclaim after PPI”.
The issue affects people who bought a car or van on motor finance from the likes of Barclays Partner Finance, Blackhorse and Santander before 28 January 2021.
In January 2021, the Financial Conduct Authority (FCA) banned car finance lenders from making ‘discretionary commission arrangements’ with brokers.
These were deals where brokers were able to adjust interest rates offered to customers on a loan, and benefit from a bigger commission from the lender if the customer accepted the deal.
This meant finance brokers had a financial incentive to offer maximum rates to customers, rather than finding them the cheapest deal, meaning many people were probably overcharged for their loans.
Since the ban came into effect, more than 10,000 people have contacted the Financial Ombudsman Service (FOS) with complaints that they were overcharged on deals made prior to 2021. The FOS has recently ruled in favour of two consumers on the issue, prompting the FCA to investigate.
Most of the affected deals will be personal contract purchases (PCPs) where customers pay for their car in monthly instalments and either give it back at the end of the term, or pay a lump sum to own the car. Drivers with hire purchase agreements – where you pay off the value of the car in monthly instalments – could be impacted too.
Lewis’ warning comes amid concerns motor finance firms may be unfairly rejecting mis-selling claims from borrowers.
‘This could be PPI-type scale’
Martin Lewis said: “I’ve done back-of-the-envelope numbers and at the top end this could be PPI-type scale – which was £40bn – big enough to be a form of quantitative easing, so real consequences for the next Government as it’ll likely take a year.
“It is to look at the handling of complaints about commissions when people got motor finance (pre-2021). Two big ombudsman cases revealed today indicate that firms are falsely rejecting complaints and the FCA is now to do a full review of complaint handling. The FCA wouldn’t do this unless it was likely to find they were doing it wrong.”
Lewis predicts that the FCA will set up either a redress scheme where the regulator orders all the firms to pay redress to every affected customer even if they’ve not complained, or put redress rules in place where people will need to complain to receive a payout.
If you think you were overcharged due to a discretionary commission arrangement, you should complain to the firm involved as soon as possible. This is because redress rules could set a cut-off for doing so.
However, the FCA has put a pause on firms responding to such complaints received on or after 17 November 2023 up to 25 September 2024, while it investigates the problem. But lodging your complaint will get it in the queue for being dealt with.
Related: Car finance commission review could pave way for big compensation payouts
